USD/CAD Daily Outlook March 27, 2012

By: Christopher Lewis

The USD/CAD pair is well-known as a barometer for oil markets. It features two very interconnected economies, and as such can be quite choppy as well. The average move from this pair is a long stretch of sideways action followed by a sharp move in one direction or another. The pair will normally follow the oil markets, but it can also depend on why the oil markets are moving. Lately, there have been many different reasons for oil to be moving, and this pair has drifted back and forth between a couple of levels as traders try to figure out the next move.

The oil markets have been rising mainly based upon not only demand by emerging markets, but the Iranian situation with the nuclear standoff with the West. This has caused the price of oil to rise while the Dollar did as well in a bid for safety at times, which is a bit counterintuitive. The fact is that the trend in this pair is down, and as such the longer-term moves will more than likely be lower.

200 day EMA, Parity, and Bernanke

The shooting star at the parity level formed on Friday signaled another failure to break above the area, and showed that the pair wasn’t ready to rise above it yet. In fact, this signaled that the pair was set to continue to do what it does: move sideways. Adding to the credence of a bearish scenario was the 200 day EMA being right above the failure.

During the Monday session, the Federal Reserve Chairman Ben Bernanke mentioned that rates in the United States would remain low for as long as possible. This dispelled the notion that many in the markets had believed, that the US was going to be forced to raise rates earlier. This in turn is bad for the Dollar, and many will run to the commodity markets in order to protect wealth. As the value of the Dollar falls, commodities will almost have to gain. As a result, selling this pair is the way to go. I will be selling rallies on shorter time frames using the 4 and 1 hour charts for entries when I see weakness. On a move below 0.99, I would also consider selling as well.